Costco’s Comeback: Why Betting Against This Retail Giant Is a Losing Game

Costco (NASDAQ:COST | COST Price Prediction) had a tough 2025, with its stock declining 6% while the S&P 500 gained 16%, marking a rare significant underperformance for the warehouse retailer. In 2026, however, trends have shifted. Year to date, the benchmark index has gained just 0.5%, but Costco shares have risen over 13%. 

Now, the warehouse retailer just reported robust January sales of $21.33 billion, up 9.3% year-over-year, supported by a 7.1% increase in comparable sales over the first four weeks of the new year. Because Costco has been a stellar investment since it went public in 1985 at a split-adjusted price of $1.67 per share, a single bad year is not a reason to bet against it.

History Shows Rebounds Follow Rare Slumps

In December, I analyzed Costco’s historical track record after underperforming years. From 2000 to 2025, the stock outperformed the S&P 500 in 16 of those 25 years, a 64% win rate, with average outperformance of 15.5 percentage points. In years where it lagged, the average shortfall was 6.3 percentage points. There were only three years with a significant underperformance of over 10 percentage points, so last year was definitely an outlier.

But I wanted to see how Costco performed after those slumps. While there were only a few data points—so the results should be interpreted cautiously—Costco beat the index 67% of the time following an underperformance. The analysis, though, showed 2025’s 22 percentage point gap was its worst relative performance in over two decades, hinting that this year would be better.

While past results do not guarantee future outcomes, investors could have bought Costco stock at its lowest price in over two years. Moreover, when you include dividends, Costco has outperformed the market across most periods. Consider that over just the past three years when artificial intelligence and the Magnificent 7 dominated the headlines, Costco’s total return reached 98% compared to the S&P 500’s 74% — and that includes last year’s outsized underperformance.

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Membership Power Drives Stability

Beyond just Costco’s robust January sales report, the retailer said the first 22 weeks of fiscal 2026 saw net sales total $123.16 billion, up 8.5% from $113.55 billion. Comparable sales grew 6.6%, or 6.3% adjusted. Digitally enabled sales surged 34.4% in January and 21.8% over 22 weeks, while it saw a 0.5% drag from timing of the Chinese Lunar New Year affecting total company results.

In its first quarter of fiscal 2026, which ended November 23, net sales rose 8.2% to $65.98 billion, beating expectations, with e-commerce sales up 20.5%. Earnings hit $4.50 per share, handily above the $4.28 forecast.

What drives Costco’s strength is its membership model. It has expanded to 81.4 million paid members, up 5.2%, with 145.9 million cardholders, a 5.1% increase. Importantly, renewal rates stood at 92.3% in the U.S. and Canada, with global rates at 89.8%. with nearly half of that increase coming from September’s fee hike. Excluding the impact of the fee increase and foreign exchange, fees still rose 7.3%. Executive memberships increased 9.1% to 39.7 million, representing 74.3% of sales.

This model also minimizes retail theft. Costco’s shrinkage rate is just 0.11% to 0.12% of sales, far below the industry average of 1% to 2%. Strict entrance controls, membership requirements, and receipt checks at exits reduce losses compared to Walmart (NYSE:WMT) and Target (NYSE:TGT), which report billions in annual theft-related costs.

Key Takeaway

Costco is typically a reliable buy at any time, given its consistent outperformance. But because underperforming the market is a rare occurrence, happening in only nine of the past 25 year — and often by only narrow margins — when it happens, view it as a buying opportunity. And when you have a big miss like last year, Costco’s historical record suggests you should be aggressively buying the dip.